The World Bank has remained stick to its growth outlook for Bangladesh at 6.5% this fiscal year, driven by stronger consumption and export growth.
However, it warned that several downside risks both from external and internal still loom large, which might dent the growth prospect.
“All evidence suggest Bangladesh’s potential GDP growth rate is no more than 6.5% given its demographics, feeble state of physical infrastructure and lingering political uncertainties,” says in its latest development update report on Bangladesh released yesterday.
In its report on South Asia in October last year, the world’s top lender had projected Bangladesh’s economic growth at 6.5% for FY16.
The bank’s latest projection is lower than the government’s 7% forecast for FY16, made in its fiscal policy.
The ADB’s forecast is, however, higher than the WB’s and International Monetary Fund’s 6.5% for FY16.
WB lead economist Zahid Hussain painted present situation of Bangladesh economy saying, “Bangladesh’s economy is like a morning sky of the Bengali month Posh when its problem is in the dense fog.”
He said: “Macro economy is in the process of being stable but political uncertainty still persists.”
“Unresolved political uncertainty can hurt growth prospects by hindering confidence re-building, leading to a stagnation of private investment.”
On the government’s 7% growth target, the report said it would be challenging to reach the target.
“Private investments need to increase significantly to achieve the government’s growth target for FY16.”
Hussain said the private investment outlook was clouded by the political uncertainty. “Though, the public investment increases, but its growth was not reflected in the field.”
“Bangladesh is yet to make any significant progress in infrastructure development.”
The report said the unresolved political uncertainty, prolonged slower growth in advanced and emerging markets could hinder export and private investment recoveries while creating pressures on the balance of payment.
“The 8% growth target by the end of the seventh five year plan is attainable, provided necessary supportive reforms and policies are put in place,” it said.
With some domestic risks, especially the weak competitiveness, the external risks like China’s lower than expected economic growth, fall in commodity price in the international markets and elusive increase in the US interest rate could affect the Bangladesh’s target growth, WB report said.
It said Bangladeshi RMG exports were facing fierce competition in both the US and EU markets with competitors that have received or may receive preferential treatment.
Referring to the Trans-Pacific Partnership (TPP), Dr. Hussain cautioned that Bangladesh would face huge competition in the US market once the TPP is passed.
About the government’s inflation target, the report said reducing inflation to 6.2% during FY16 will be challenging but achievable given a cautious 15.6% broad money growth and stable international prices.
The WB tried to find a quantitative analysis relationship between global and domestic prices on sugar, edible oil and wheat.
“There is evidence of asymmetric inflation inertia in Bangladesh. Domestic price response to international price decrease is much slower than the response to international price increase,” it said.
The budget deficit may rise in FY16, but debt is currently at a low risk of distress, the report said.
It said the size of ADP in FY16 is envisaged to increase by 29.3% relative to the FY15 revised ADP.
Improving the quality of ADP implementation is difficult when the number of projects remains unmanageably large, WB said.
It also said usual problems of “too many projects with too little allocation” had not been addressed.
The lender recommended that Bangladesh needs to sustain GDP and remittances growth, create jobs, contain inflation, and improve the quality of public service delivery to reduce extreme poverty and boost shared prosperity.
Meanwhile, the WB Country Director in Bangladesh Mr Johannes Zutt in the function said Bangladesh’s major strength is “resilience” capacity.
“The country passed through many hartals, blocked and political violence. But its more than 6% GDP growth over the last one decade has proved the resilience capacity,” he said.
An impressive improvement on the social sector, the WB CD said the country is now required to do structural reforms to become competitive in the global market, he said.